SCOTUS Reports

Tag: Treasury Regulation § 1.6664-2

  • Snow v. Commissioner, 141 T.C. 238 (2013): Calculation of Underpayment for Accuracy-Related Penalty Under I.R.C. § 6662

    Snow v. Commissioner, 141 T. C. 238 (2013)

    In Snow v. Commissioner, the U. S. Tax Court ruled on the correct computation of an underpayment for the purposes of applying the 20% accuracy-related penalty under I. R. C. § 6662. The court upheld the validity of regulations used to determine underpayment and clarified how to calculate it when a taxpayer overstates withholdings. This case is significant for establishing the method of calculating underpayments that include overstated withholding credits, impacting how penalties are assessed in similar situations.

    Parties

    Glenn Lee Snow (Petitioner) was the taxpayer and filed his case pro se. The Commissioner of Internal Revenue (Respondent) was represented by Martha J. Weber.

    Facts

    Glenn Lee Snow, a musician, filed his 2007 federal income tax return claiming zero tax liability and reported $16,684. 65 in federal income tax withholdings. However, this amount included $5,562. 13 in Social Security and Medicare taxes, which were incorrectly reported as federal income tax withholdings. The correct amount of federal income tax withheld was $11,117. 65. Consequently, Snow received a refund of $16,684. 65, which included $5,567 for which no federal income tax had been withheld. The IRS determined that Snow was liable for a $12,968 tax and a $3,707 accuracy-related penalty under I. R. C. § 6662(a) due to negligence and substantial understatement of income tax.

    Procedural History

    Snow’s case was initially addressed in a memorandum opinion, Snow v. Commissioner, T. C. Memo 2013-114, where the court found that Snow’s wages were includable in his income and held him liable for the accuracy-related penalty and an additional penalty under I. R. C. § 6673(a). Following this, the parties disputed the computation of the underpayment for the accuracy-related penalty, leading to the supplemental opinion in 141 T. C. 238. The Tax Court applied de novo review to the legal issues concerning the computation of the underpayment.

    Issue(s)

    Whether the Commissioner correctly calculated Snow’s underpayment for the purposes of applying the accuracy-related penalty under I. R. C. § 6662(a)?

    Rule(s) of Law

    I. R. C. § 6662(a) imposes a 20% accuracy-related penalty on any underpayment attributable to negligence or substantial understatement of income tax. I. R. C. § 6664(a) defines “underpayment” as the amount by which any tax imposed exceeds the excess of the sum of the amount shown as tax on the return plus amounts not shown but previously assessed, over the amount of rebates made. Treasury Regulation § 1. 6664-2 provides the formula for calculating underpayment, which includes adjustments for overstated withholding credits.

    Holding

    The Tax Court held that the Commissioner correctly calculated Snow’s underpayment for purposes of applying the accuracy-related penalty under I. R. C. § 6662(a). The court determined that Snow’s underpayment was $18,535, which included his tax liability of $12,968 plus the $5,567 overstatement of withholding credits.

    Reasoning

    The court’s reasoning centered on the application of Treasury Regulation § 1. 6664-2, which was upheld as valid in Feller v. Commissioner, 135 T. C. 497 (2010). The regulation provides that the amount shown as tax on the return is reduced by the excess of the amount shown as withheld over the amount actually withheld. In Snow’s case, this resulted in a negative $5,567 shown as tax on his return. The court further clarified that amounts collected without assessment under § 1. 6664-2(d) must not have been refunded to the taxpayer. Since Snow received a refund of $16,684. 65, which included the overstated withholding, there were no amounts collected without assessment. The court also interpreted “rebates previously made” to mean rebates issued before the return was filed, and since no such rebates were made to Snow, the amount of rebates was $0. The court’s calculation of the underpayment aligned with the regulation and ensured that the penalty was based on the actual revenue loss to the government due to Snow’s actions.

    Disposition

    The Tax Court issued an order and entered a decision in favor of the Commissioner, affirming the calculation of the underpayment and the resulting accuracy-related penalty of $3,707.

    Significance/Impact

    Snow v. Commissioner is significant for its clarification of the calculation of underpayments under I. R. C. § 6662, particularly in cases involving overstated withholding credits. The decision reinforces the validity and application of Treasury Regulation § 1. 6664-2, providing a clear method for computing underpayments in such scenarios. This ruling has practical implications for tax practitioners and taxpayers, as it establishes a precedent for assessing accuracy-related penalties when withholdings are misreported. Subsequent cases have referenced Snow to guide the calculation of underpayments, emphasizing its doctrinal importance in tax law.

  • Snow v. Commissioner, 141 T.C. No. 6 (2013): Calculation of Underpayment for Accuracy-Related Penalty

    Snow v. Commissioner, 141 T. C. No. 6 (U. S. Tax Ct. 2013)

    In Snow v. Commissioner, the U. S. Tax Court upheld the IRS’s computation of an underpayment for the purpose of imposing a 20% accuracy-related penalty under I. R. C. § 6662(a). The court clarified how to calculate an underpayment when a taxpayer overstates tax withholdings, affirming that such overstatements increase the underpayment. This ruling follows the precedent set in Feller v. Commissioner and emphasizes the importance of accurately reporting tax withholdings on returns, impacting how tax liabilities and penalties are assessed.

    Parties

    Glenn Lee Snow, the petitioner, represented himself pro se. The respondent was the Commissioner of Internal Revenue, represented by Martha J. Weber.

    Facts

    Glenn Lee Snow filed his 2007 federal income tax return, claiming a refund of $16,684. 65 based on reported federal income tax withholdings of the same amount. However, Snow incorrectly included $5,562. 13 of Social Security and Medicare tax withholdings as federal income tax withholdings on his return. The IRS determined that only $11,117. 65 had been withheld as federal income tax, resulting in Snow receiving an erroneous refund of $5,567. Snow’s actual tax liability for the year was $12,968, leading the IRS to calculate an underpayment of $18,535, which included the tax liability plus the erroneous refund, and assessed a 20% accuracy-related penalty of $3,707 under I. R. C. § 6662(a).

    Procedural History

    Snow filed his 2007 tax return and received a refund of $16,684. 65. The IRS issued a notice of deficiency, asserting that Snow owed additional taxes due to the overstatement of withholdings and was liable for an accuracy-related penalty. Snow petitioned the U. S. Tax Court to challenge the computation of his underpayment for the penalty. The court had previously found Snow liable for the tax and penalties in a Memorandum Opinion (T. C. Memo. 2013-114). In this case, the Tax Court was tasked with reviewing the IRS’s computation of the underpayment for the accuracy-related penalty under Rule 155. Snow did not dispute his tax liability or the section 6673(a) penalty but objected to the computation of the section 6662(a) penalty.

    Issue(s)

    Whether the IRS correctly calculated the underpayment for purposes of imposing the accuracy-related penalty under I. R. C. § 6662(a) when the taxpayer overstated federal income tax withholdings on his return?

    Rule(s) of Law

    Under I. R. C. § 6662(a), a 20% accuracy-related penalty is imposed on any portion of an underpayment attributable to negligence or substantial understatement of income tax. The term “underpayment” is defined in I. R. C. § 6664(a) and further clarified by Treasury Regulation § 1. 6664-2. Specifically, Treasury Regulation § 1. 6664-2(c)(1) reduces the amount shown as tax on the return by the excess of the amount shown as withheld over the amounts actually withheld. The court in Feller v. Commissioner, 135 T. C. 497 (2010), upheld the validity of this regulation.

    Holding

    The U. S. Tax Court held that the IRS correctly calculated Snow’s underpayment for purposes of the accuracy-related penalty under I. R. C. § 6662(a). The underpayment was determined to be $18,535, which included Snow’s tax liability of $12,968 plus the $5,567 overstatement of withholdings. Consequently, the accuracy-related penalty of $3,707 (20% of $18,535) was upheld.

    Reasoning

    The court’s reasoning focused on the application of Treasury Regulation § 1. 6664-2, which provides a formula for calculating an underpayment. The court emphasized that the amount shown as tax on Snow’s return was reduced by the excess of the amount he claimed as withheld over the amounts actually withheld, resulting in a negative figure of $5,567. This negative amount was then added to the tax imposed to determine the underpayment. The court’s decision followed the precedent set in Feller v. Commissioner, which upheld the validity of the regulation. The court reasoned that Snow’s overstatement of withholdings increased the underpayment, and thus the accuracy-related penalty was correctly computed. The court also clarified the meaning of “rebates” and “amounts collected without assessment” under the regulation, finding that Snow had no such amounts that would reduce the underpayment. The court’s interpretation ensured that the penalty was based on the actual amount of revenue the government was deprived of due to Snow’s return.

    Disposition

    The court affirmed the IRS’s computation of the underpayment for the accuracy-related penalty and entered a decision for the respondent.

    Significance/Impact

    Snow v. Commissioner reinforces the importance of accurately reporting tax withholdings on returns, as overstatements can significantly impact the calculation of underpayments and subsequent penalties. The decision follows and expands upon the precedent set in Feller v. Commissioner, providing further guidance on the application of Treasury Regulation § 1. 6664-2. This ruling affects tax practitioners and taxpayers by clarifying how the IRS computes underpayments for penalty purposes, particularly when errors in withholding amounts are involved. The case underscores the need for meticulous attention to detail in tax reporting to avoid increased liabilities and penalties.